The stock market's rise of over 5 per cent so far this year has once again led investors to talk about the so-called Capricorn effect, otherwise known as the January effect, which claims that stocks tend to rise in the month of January. Dr Benedict Koh, Professor of Finance at SMU said that the January effect was not present from 1988 to last year and found the market to have fallen in January for 13 of the 24 years investigated. He said that as more investors became aware of the Capricorn effect, they tried to profit from this anomaly by buying stocks in December and selling them at the end of January. And as more investors jumped onto the bandwagon, their actions caused the Capricorn effect to peter out over the years. Given the lack of evidence of the January effect in the last 24 years, the rise in the Straits Times Index in the first few days of January was due primarily to positive economic news coming out of the US and China.

The Straits Times

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